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The Silver Lining of Trade War
September 12, 2019
By Hannah Kain, ALOM President and CEO
The trade wars are raging with businesses struggling to keep up with changing tariff rates, restrictions, retaliation and general fall-out. As a strong free trade proponent, I recently vocalized my complaints in no uncertain terms when another business leader started discussing the upsides. It reminded me that every time there is a downside, or even a shift, there are also possible silver linings.
In that spirit, here are five possible upsides for US supply chain pros to the trade wars between the US and China.
- Ocean freight rates from China to the US reached new peaks before the trade wars. Now the freight volume is coming down considerably, and it is a great time to renegotiate the freight rates.
- Not only has the Chinese currency dropped, making imports more affordable; in addition, Chinese factories have been proven very open to price discussion. While this is unlikely to fully mitigate a 25% tariffs, it may actually mitigate some of the lower tariff percentages. Again, a great time to negotiate.
- While some supply chain pros have moved their manufacturing out of China over the last decade, mainly due to the increasingly higher cost structure, others have kept their supply chains firmly anchored in China; yet too often the anchor was based on inertia. Now is a good time to review the supply chain strategy, assess the risk, calculate true landed cost, weigh the cost against the increased sales that more supply chain agility can bring, and ensure that the supply chain meets long-term goals.
- One company with a strong US market decided to consolidate global manufacturing in Mexico for proximity to the US market. Near-sourcing, meaning placing production in proximity to markets, helps sustainability in most cases. It also increases agility. Especially with heavy, bulky items, near-sourcing should be considered.
- On-demand production, additive manufacturing, postponement strategies should be considered as part of a solution. There are creative, agile companies building on these strategies close to most major markets, and certainly close to the US market. It shortens transportation time, and especially in markets with short shelf-live, it is worth considering.
Bonus point: This is a great opportunity to get new, agile players into the supply chain. Consider smaller, maybe diverse companies that bring a new perspective and new can-do energy into the supply chain.